Last updated: 16 October 2026
Why are charity tax rules changing?
Charities get generous tax reliefs: exemption from tax on most income and gains, Gift Aid on donations and business rates relief. The government found that a small number of people used charities to get financial benefits for themselves or to shelter money. The previous government consulted on reforms, and the current government took them forward, with the changes taking effect from 6 April 2026 (1 April 2026 for charities that are companies), according to HMRC’s policy paper on charity compliance measures.
The main changes
| Area | What changed |
| Tainted donations | For donations made on or after 6 April 2026, Finance Act 2026 replaced the donor “purpose” test with an outcome test: relief is lost if a linked person receives financial assistance from the charity under connected arrangements, including a loan, guarantee or investment, even on arm’s length terms |
| Approved charitable investments | All investment types must now be made for the benefit of the charity and not for tax avoidance to count as approved investments |
| Legacies (attributable income) | Legacies a charity receives can become taxable if they are not spent on charitable purposes |
What this means for donors
Genuine donations are not affected. Individuals still get Gift Aid: the charity claims 25p for every £1 you give, and higher and additional rate taxpayers can claim extra relief through their tax return. Companies get corporation tax relief on cash donations to charities. Problems only arise if the donor, or someone connected to them, gets something back, such as a loan, a contract or a sale of assets on favourable terms.
What this means for charities
- Check that investments are made for charitable purposes and keep records of the reasons.
- Review any transactions with trustees, donors and their businesses.
- Update Gift Aid procedures and declarations.
- Keep clear records of how restricted funds are spent.
Example
A business owner gives £50,000 to a small charity, and the charity then lends £45,000 to the owner’s company at a low interest rate. Under the new outcome test, the donation is tainted because a linked person received financial assistance from the charity, so the donor loses tax relief, whatever the donor’s motive. The loan is also unlikely to be an approved charitable investment, which can restrict the charity’s own tax exemptions. A genuine donation with no benefit returned would get full relief.
Business giving
Companies can deduct cash donations to charities from profits. Gifts of equipment or stock used in the trade can also qualify. Sponsorship, where the business gets advertising, is a business expense rather than a donation. Payroll giving lets employees give before tax.
Gift Aid for higher rate taxpayers
If you give £800, the charity claims £200, making £1,000. If you pay 40% tax, you can claim a further £200 through your tax return. Gift Aid donations also reduce your adjusted net income, which can restore your personal allowance above £100,000.
Frequently asked questions
Can I get Gift Aid on a donation from my business account?
Not if the business is a company. Companies claim corporation tax relief instead. Sole traders can Gift Aid personal donations.
Do small charities need to worry?
Yes, the rules apply to all charities, though most will not be affected.
Is a donation of shares tax-efficient?
Gifts of listed shares to charity are free of CGT and give income tax relief on their value.
What if a charity gets it wrong?
HMRC can deny reliefs, charge tax and impose penalties.
Related: charitable donations and tax relief, donations to a youth club and service discounts to charities.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with charity and donation tax rules. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
